WEEK THREE PRACTICAL EXERCISE INSTRUCTIONS AND HELP

PART 1 OF YOUR EXERCISE

HORIZONTAL ANALYSIS Is a method of analyzing financial statements that looks at the percentage change in a line item from one year to the next. It is calculated by the formula:

{(Subsequent Year Previous Year) / Previous Year} x 100.

• Make these calculations and enter into the YELLOW column in both exhibit 4-27a and b.
• NOTE: the Subsequent year is 20X1, and the Previous Year is 20X0

PART 2 OF YOUR EXERCISE

VERTICAL ANALYSIS Is a method to analyze financial statements that answers the general question: What percentage of one line item is another line item? The formula is:

(Line Item of Interest/Base Line Item) x 100.

• On the Statement of Operations, you are to calculate each line item (the Item of Interest) as a percentage of TOTAL OPERATING REVENUES (the Base Line Item).
• On the Balance Sheet, you are to calculate each line (the Item of Interest) as a percentage of TOTAL ASSETS (Base Line Item).
• You are responsible for calculating the vertical analysis for 20X1 only.

PART 3 OF YOUR EXERCISE

This portion of your exercise is related to calculating RATIOS:

• You will only be required to calculate the CURRENT RATIO, QUICK RATIO, and ACID-TEST RATIO for the YEAR 20X1.
• You will find the data you need to calculate the ratios in EXHIBIT 4-27b Balance Sheet for Wakeland Community Hospital, and the formulas and hints are listed below.
• Find the benchmark and the desired position in the table on page 185 of your textbook. Be sure to use the correct benchmark for the size of Lake Community Hospital (310 beds).

CURRENT RATIO In calculating this ratio, be sure to use TOTAL CURRENT ASSETS and TOTAL CURRENT LIABILITIES to make your calculation.

CURRENT ASSETS

CURRENT LIABILITIES

QUICK RATIO In calculating this ratio, consider CASH AND CASH EQUIVALENTS to be the same as CASH+MARKETABLE SECURITIES, and NET RECEIVABLES to be the same as NET PATIENT ACCOUNTS RECEIVALBES. Be sure to use TOTAL CURRENT LIABILITIES.

CASH + MARKETABLE SECURITIES + NET RECEIVALBES

CURRENT LIABILITIES

ACID-TEST RATIO In calculating this ratio, consider CASH AND CASH EQUIVALENTS to be the same as CASH+MARKETABLE SECURITIES, and be sure to use TOTAL CURRENT LIABILITIES.

CASH + MARKETABLE SECURITIES

CURRENT LIABILITES

WEEK THREE PRACTICAL EXERCISE
Exhibit 4.27a
Wakeland Community Hospital Statement of Operations (in thousands) For the Years Ended December 31, 20x1 and 20x0
	20X1	20X0	Percentage Change 20X1-20X0	Percentage of Total Revenues 20X1
REVENUES
Net patient service revenue	245000	220000
Other operating revenue	7400	5800
Total operating revenues	252400	225800
OPERATING EXPENSES
Salaries and benefits	132173	120167
Supplies and other expenses	95000	64000
Depreciation	13000	12300
Interest	3500	1500
Total operating expense	243673	197967
INCOME FROM OPERATIONS	8727	27833
NON-OPERATING INCOME
Investment income/contributions	7700	9500
Excess of revenues over expenses	16427	37333
Net Income	16427	37333

EXHIBIT 4.27b
Wakeland Community Hospital Balance Sheet (in thousands) For the Years Ended December 31, 20X1 and 20X0
	20X1	20X0	Percentage Change 20X1-20X0	Percentage of Total Assets 20X1
Current assets
Cash and cash equivalents	50500	45500
Net patient accounts receivables	49500	46400
Inventories	3700	4200
Other current assets	6700	5600
Total Current Assets	110400	101700
Plant, property, and equipment
Gross plant, property, and equipment	220000	185500
(less accumulated depreciation)	(75000)	(108000)
Net property, plant and equipment	145000	77500
Funded depreciation/board-designated funds
Cash and short-term investments	200000	120000
Total assets	455400	299200
Current liabilities
Accounts payable	24500	19500
Salaries payable	5500	4500
Notes payable	5300	3500
Total current liabilities	35300	27500
Long-term liabilities
Bonds payable	70000	37500
Total long-term liabilities	70000	37500
Net assets	350100	234200
Total liabilities and net assets	445400	299200

SELECTED LIQUIDITY RATIOS FOR 20X1
	WAKELAND COMMUNITY HOSPITAL 20X1	BENCHMARK	DESIRED POSITION
CURRENT RATIO
QUICK RATIO
ACID-TEST RATIO